The Pound continues to be range-bound and has edged back towards the upper end against the Euro and USD after reaching one-week lows yesterday.
After seeing an unexpected drop-off yesterday, Sterling has yet again shown its resilience this morning and moved back towards the higher end of the recent ranges. The UK’s successful vaccination campaign continues to give underlying support to the Pound, along with the BoE’s reluctance to move towards negative interest rates.
Dovish comments earlier in the week from BoE Governor Andrew Bailey, however, likely sparked some caution amongst investors about the UK's economic recovery, as he confirmed the BoE are committed to buying bonds at an elevated pace. Traders will be closely watching tomorrow’s BoE interest meeting for additional clues on their latest outlook on inflation and the UK economy.
The EU has also launched legal action against the UK for an alleged breach of the Northern Ireland protocol and, although this hasn’t had a huge impact on the FX rates so far, it’s certainly something to keep an eye on in case things escalate.
The Euro continues to remain on the backfoot as the EU’s vaccine rollout slows down, with over a dozen countries suspending use of the AstraZeneca jab amidst health fears. Although the vaccine has been fully endorsed by the bloc's medical regulator and the World Health Organisation, the suspension is likely to damage public confidence, adding to market concerns surrounding the EU's rollout efforts.
As a result, the GBP/EUR pushed up nearly 1% from yesterday’s low and hit a 3-week high this morning. The GBP/USD has recovered 1-cent from yesterday’s low and trades at the highest levels of the week. The EUR/USD remains subdued below the 1.19 mark which is close to the lowest levels in 4-months.
Eyes will move onto this evening's Federal Reserve meeting, with investors awaiting the central bank’s updated economic projections and chair Powell’s comments on the recent increase in US bond yields.